Problema Solution
You are a trust fund baby, but you cannot touch your money until you are 30. You are now 21 and want to plan for your future based on the current value of your trust fund. The guaranteed payout of your trust is $25,000. What is that money worth to you today, if you assume an annual inflation rate of 3% compounded annually?
Answer provided by our tutors
the decay factor for annual inflation rate of 3% or 0.03 is 1 - 0.03 = 0.97
the start amount is $25,000
the time t = 30 - 21 = 9 years
in 9 years the money will be worth 25000*(0.97)^9 = $19,005.8.